During the last few days, we???ve gotten a number of economic reports that show an improving global economy. On the domestic front, Wednesday???s August ISM manufacturing index showed continued month-over-month improvement with the best order figure in several months. That situation suggests an improving U.S. economy, as did the latest data from both Markit Economics and HSBC on the euro zone and China, respectively. Markit Economics reported the final August euro-zone Manufacturing PMI came in at 51.4, a 26-month high of 51.4 that was ahead of 50.3 in July. Turning to China, HSBC???s August China Manufacturing PMI rebounded to 50.1 from an 11-month low of 47.7 in July. To me, this situation points to a potential stabilization in China, which is better than the declines we saw during the last several months. But one month of good data does not mean China is back on the path to growth just yet.
That improvement sounds pretty good, but there is a dark side to the data as well — at least where jobs are concerned. And that risk is something to zero in on as we contemplate Fed tapering. As you probably know, the next Federal Open Market Committee meeting is set for Sept. 17-18. Remember, the Fed is aiming to keep short-term interest rates near zero until the unemployment rate falls to 6.5% or inflation exceeds 2.5% a year. So far, there are no signs in the consumer price index or producer price index data that inflation is approaching the 2.5% level. While we???ve made would-be progress in the unemployment rate, largely due to a growing number of folks dropping out of the labor force, we are still a ways away from 6.5%.
My concern is the August employment data could actually see a rise in the unemployment rate.
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